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Opinion: Five years later, banks are still delaying mortgage relief

By

DavidWeidner

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SAN FRANCISCO (MarketWatch) — Government officials and the big banks like to trumpet the effectiveness of the bailouts. In doing so, they are referring to the fact the vast majority of the taxpayer money loaned to banks has been repaid with interest and a greater disaster averted.

Timothy Geithner himself, the former Treasury Secretary who oversaw implementation of the bailouts said upon leaving the post this year that the bailout “record looks very good, much more effective.”

But when it comes to the other part of the bailouts — the one promised to struggling borrowers — the latest data suggest what little has been done has been done grudgingly, shoddily, or not at all.

First, a little background: As part of the guarantees and cash handed out to banks in 2008 and 2009, banks were urged to continue lending and provide relief to home borrowers. The banks’ response was almost exactly the opposite. Foreclosures began raining down on customers.

That led to lawsuits by 49 states and, eventually, the National Mortgage Settlement of 2012. Under that agreement, the banks would provide $25 billion in relief through multiple channels: loan modifications, principal reductions, refinancing, direct payments to foreclosure victims and new rules governing future conduct.

Moreover, the banks in question all said they were working on it. Corrective action plans are in place and being implemented.

It sounds great. But let’s talk about the elephant in the room — the room in the foreclosed house. It takes 477 days for the foreclosure process to run its course. While that might not seem like a long time, it’s a record length.

From a homeowner’s perspective, that’s good news. After all, time allows a borrower a lot of options. Maybe they’ll find a new job and come up with the funds, refinance, apply for a modification or acquire some other kind of relief that keeps them in their home.

Still, it’s a race against the clock. The banks waited just a few weeks for their bailout, the Troubled Asset Relief Program, after Lehman Brothers failed in 2008. We’re in the sixth year since the banks received relief, and yet 5.4% mortgage holders, more than twice the historic average of 2%, are considered seriously delinquent.

Earlier this year the Federal Housing Finance Agency rolled out a streamlined mortgage modification program, but that program was only for loans owned or backed by Fannie Mae and Freddie Mac, the government-controlled mortgage giants. The lending by the banks isn’t part of the program.

That’s why Wednesday’s report by the independent monitor, Joseph A. Smith, is so discouraging. Because even though banks scored well on most metrics, the ones they failed were critical.

According to the report, B. of A., for instance, didn’t have an adequate system to tell if a loan was truly delinquent before starting the foreclosure process, according to the monitor. It also continued to send out incomplete paperwork. J.P. Morgan charged insurance premiums to customers who weren’t required to pay them. Citi wasn’t always notifying customers in a timely manner if their paperwork was complete.

And those were just a few of the problems. As you can see, borrowers could have been foreclosed on even if they were current, charged when they shouldn’t have, or had their applications for relief delayed.

Perhaps this doesn’t sound so calamitous. But imagine a borrower stretched thin financially, facing the pressure of losing a home and trying to beat the clock. A few extra charges, delays and red tape could push a salvageable situation into a lost one.

You’ve heard the stories of a elderly Vietnam veteran losing his home over a $134 tax bill, or the guy who almost lost his home because he underpaid his monthly mortgage bill by 80 cents. Banks that have been sued for sloppy foreclosure work have a funny way of requiring customers to be sticklers for details.

What’s not so funny is that this may not be by accident. A lawsuit filed in Boston by aggrieved homeowners included employee statements that they were told to make up reasons for denying modifications and were rewarded for foreclosures. The bank in question, Bank of America, said the employee statements were inaccurate.

Where is the truth? What we do know is that foreclosures continue to run at up to six times the historical rate — there were 84,000 foreclosure filings in September, the average was 13,000 from 2001 to 2005. We know an independent auditor says banks continue to make sloppy errors and the banks are promising to fix them, again.

So, if you or someone you know is still waiting for mortgage relief tell them to hang on. Help is on the way.

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